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HMRC internal manual

Capital Allowances Manual

PMA: Assets used partly for qualifying activity: Significant reduction in use


Expenditure on an asset that is used partly for a qualifying activity and partly for other purposes is put into a single asset pool.CA27005. The allowances are reduced on a just and reasonable basis. There may be a change of circumstances, which means that the allowances given exceed the depreciation charge. If:

  • the extent of the use of an asset for activities that are qualifying activities falls, and
  • the market value of the asset exceeds the balance in the single asset pool for the chargeable period in which the change of circumstances happens by more than £1 million,


a disposal value is brought to account.

The disposal value is market value. It is put into another single asset pool and the WDAs in that pool are reduced on a just and reasonable basis taking account of the changed circumstances.

Example Icarus Airways buys a plane for £40 million in its accounts year ended 31 December 2002. It uses the plane 90% for a qualifying activity and 10% for an activity not within the charge to tax in the UK. It claims FYA. The FYA of £16 million (= 40% x £40 million) is reduced to £14,400,000 (90% of £16 million). The pool carried forward at 31 December 2002 is £24 million. In the year ended 31 December 2003 things change. The plane starts to be used 60% for activities outside the UK tax net. The market value of the plane on 31 December 2003 is £32 million, which is more than £1 million more than the pool value of £24 million. A disposal value of £32 million is brought to account. There is a balancing charge of £7.2 million (= 90% of £32 million - £24 million) for the year ended 31 December 2003. There is a pool of £32 million on 1 January 2004.